Markets Today: Stock Climb and Bond Yields Fall as Interest Rate Concerns Ease

Rich Asplund - Barchart - Mon Aug 28, 2023

Morning Markets

September E-Mini S&P 500 futures (ESU23) this morning are up +0.45%, and Sep Nasdaq 100 E-Mini futures (NQU23) are up +0.59%.

Stock indexes this morning are moderately higher on some positive carryover from last Friday’s neutral comments from Fed Chair Powell, who said the Fed is prepared to raise interest rates further if needed but "will proceed carefully" on whether to hike again, opening the door to a potential Fed pause.

Also, M&A activity supports stocks after Kimco Realty purchased RPT Realty for about $2 billion. In addition, 3M Co is up more than +5% in pre-market trading after agreeing to pay $5.5 billion to resolve lawsuits related to military earplugs.

Global stocks have carryover support from today’s rally in the Shanghai Composite to a 2-week high after China took several measures to boost its markets, including cutting the levy it imposes on stock trades, among other measures.

The markets are discounting the odds at 20% for a +25 bp rate hike at the September 20 FOMC meeting and 65% for that +25 bp rate hike at the November 1 FOMC meeting.

Global bond yields are lower. The 10-year T-note yield is down -1.8 bp at 4.218%. The 10-year German bund yield is down -0.8 bp at 2.553%. The 10-year UK gilt is not trading today, with UK markets closed for the Summer Bank holiday.

Overseas stock markets are higher. The Euro Stoxx 50 is up +0.92%. China’s Shanghai Composite Index closed up +1.13%. Japan’s Nikkei Stock Index closed up +1.73%.

The Euro Stoxx 50 today is moderately higher. Interest rate-sensitive technology stocks are leading the overall market today after neutral comments from ECB President Lagarde and Fed Chair Powell last Friday. Lagarde said the ECB would set rates high enough to curb inflation but stopped short of signaling a rate hike at next month’s ECB meeting, while Powell said the Fed would “proceed carefully” on any additional rate hikes. Stock gains were limited, and European government bond yields briefly ticked higher when ECB Governing Council member Holzmann said he sees the case for “pushing on with rate increases without taking a pause." Trading volumes were muted today, with markets closed in the UK for a summer bank holiday.

Eurozone July M3 money supply unexpectedly fell -0.4% y/y, weaker than expectations of no change and the steepest pace of contraction in 13 years.

ECB Governing Council member Holzmann said, "We're not yet in the clear when it comes to inflation, and if there aren't any big surprises, I see a case for pushing on with rate increases without taking a pause."

China’s Shanghai Composite jumped to a 2-week high and closed moderately higher. The Shanghai Composite today initially soared more than +5% after Chinese authorities announced a slew of measures to boost markets over the weekend. On Sunday, Chinese regulators cut the tax charged on stock trades in half to 0.05% from 0.1%, the first cut since 2008. Then, the China Securities Regulatory Commission said it would restrict share sales by stop stakeholders at companies whose stock prices have fallen below certain levels. The regulator also cut margin ratios for leveraged trades and said it would slow the pace of IPOs. Property stocks also jumped after the regulator said the property sector is exempt from new restrictions on refinancing. However, stocks gave up the bulk of their sharp advance as foreign funds accelerated their selling through the day. Data compiled by Bloomberg showed global fund sold the equivalent of $1.1 billion of mainland shares on a net basis via trading links with Hong Kong.

Today’s Chinese economic news was negative for stocks after China July industrial profits fell -6.7% y/y, the fifth consecutive month profits have declined.

Japan’s Nikkei Stock Index today closed moderately lower. Japanese technology stocks rallied today on the heels of last Friday’s strength in U.S. technology stocks on neutral interest rate comments from Fed Chair Powell. Also, dovish comments from BOJ Governor Ueda at last Friday’s central bankers’ conference at Jackson Hole, Wyoming, gave stocks a lift and undercut the yen when he said that price growth remains slower than the BOJ’s goals, signaling the BOJ will maintain its ultra-easy monetary policies. On the negative side, Japanese companies reliant on Chinese demand retreated after an online boycott of Chinese consumers from Japanese products continued in response to the release of treated wastewater into the ocean from the wrecked Fukushima nuclear plant.

Pre-Market U.S. Stock Movers

3M Co (MMM) climbed more than +4% in pre-market trading after Bloomberg News reported the company has tentatively agreed to pay $5.5 billion to resolve more than 300,000 lawsuits claiming it sold the U.S. military defective combat earplugs.

Horizon Therapeutics (HZNP) jumped more than +5% in pre-market trading after the FTC withdrew from the internal adjudication of its challenge to the company’s acquisition by Amgen.

Zimmer Biomet Holdings (ZBH) rose more than +1% in pre-market trading after it said last Friday it will maintain its quarterly cash dividend at 24 cents per share.

BridgeBio Pharma (BBIO) rallied more than +10% in pre-market trading after it reported its Phase 3 Attribute-CM study on its heart drug disease drug Acoramidis met its goals.

Hawaiian Electric (HE) surged more than +40% in pre-market trading after it released a statement saying its power lines to Lahaina were not energized when a fire broke out there Aug 8.

RPT Realty (RPT) rallied more than +12% in pre-market trading after Kimco Realty said it would purchase the company in an all-stock transaction valued at about $2 billion.

Boston Scientific (BSX) is up more than +5% in pre-market trading after a study of its Farapulse system to treat patients with atrial fibrillation met its primary efficacy and safety endpoints.

Appfolio (APPF) climbed more than +2% in pre-market trading after William Blair upgraded the stock to outperform from market perform.

CrowdStrike Holdings (CRWD) dropped more than -3% in pre-market trading after Morgan Stanley downgraded the stock to equal weight from overweight.

Novocure Ltd (NVCR) plunged more than -40 % in pre-market trading after it said a late-stage trial of its ovarian cancer drug did not meet its primary endpoint of overall survival at the final analysis.

Today’s U.S. Earnings Reports (8/28/2023)

Forafric Global PLC (AFRI), HEICO Corp (HEI), Mitek Systems Inc (MITK), Napco Security Technologies In (NSSC), Nordic American Tankers Ltd (NAT), Urban One Inc (UONEK).

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On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.